Thursday, April 29, 2004

InfoUSA to Acquire OneSource in Tender Offer: Dun & Bradstreet Acquires Deeper Competition. Shore Speaks With Martin Kahn.

Leading marketing information provider InfoUSA, Inc. today announced the pending acquisition of business information provider OneSource Information Services, Inc. in a tender offer for their stock priced at $8.85 a share, about 8.5 percent above ValueAct's offer to take OneSource private in February. The acquisition has some minor hooks that may require further board approval for the takeover, but all in all this looks as if it will be a clean acquisition. OneSource has been a solidly profitable business, but had been searching for new ways to take their business beyond its relatively deep penetration into sales support and marketing operations and business intelligence units into broader markets, and that may yet happen under InfoUSA's tutelage. Shore Senior Analyst Jean Bedord notes that InfoUSA has acquired about twenty companies since 1996 as economies of scale continue to drive margins down - including InfoUSA's, where profits fell 36 percent in Q12004 versus the same period last year with heavy investments in marketing hitting the top line but not yet the bottom line.

The acquisition is reminiscent of Dun & Bradstreet's acquisition of online business information provider Hoover's, Inc. last year - a large database company acquires a smaller player with greater user penetration and integration focus - but with some important differences. InfoUSA supports direct marketing campaigns with a broad and deep database of business and consumer directory products, vertical industry databases, online mailing lists, marketing leads and retail consumer products. Through its Donnelley Group - most likely to benefit from or to absorb OneSource - InfoUSA offers a wide array of content integration support tools, data enhancement and file cleansing services, to supply external content and improve client content for major corporations. The likely scenario is that InfoUSA will take advantage of OneSource's strong business indexing and taxonomy schemes, wide base of business information sources and deep penetration into the top-tier corporate markets to present a challenge to Dun & Bradstreet across the full breadth of business information products.

A conversation with OneSource Interim CEO Martin Kahn this afternoon confirmed the outlines of this deal, which he sees as "a very good fit" for all concerned. OneSource's focus on major corporate sales and a higher level of business information integration from dozens of premium sources certainly gives InfoUSA a fine capstone of market opportunities that would have been difficult to penetrate with their own market profile and resources. Martin confirmed that both the management teams and production teams at OneSource will remain in place, with only Martin moving on for the moment as he has now completed his duty of shepherding OneSource into the hands of an appropriate business partner. He also indicated that InfoUSA was keen to acquire OneSource's management team as a part of the deal, which certainly has a broad and sophisticated global focus that will assist InfoUSA in putting together the sales and marketing profile necessary to take on Dun & Bradstreet across a range of market opportunities. "The way I see it there will be two major players [in business and marketing information services] moving forward - InfoUSA with OneSource and D&B with Hoover's," Martin said.

A good deal? We at Shore think so. It gives D&B a sorely-needed run for the money and places their Hoover's division on notice that consumer-savvy online content sales are now part of the combined InfoUSA/OneSource portfolio. Shore Senior Analyst Janice McCallum adds, "The potential for OneSource to move into the internal company database coding space that D&B dominates is amplified by this move. I think it's a good move by InfoUSA, who needs to find a way to play a role outside of the commodity data business at this point. It looks as though InfoUSA wants to crack the top tier of 'national accounts' and sees OneSource, which sells to large accounts, as helpful in their quest. They have been very strategic in their acquisitions in the past and the acquisitions have generally worked out well--either in expanding their data sources, improving quality of data by adding verified source data, buying quality brands (like Donnelley) with established customer bases, or buying up smaller competitors. It's likely that InfoUSA also sees OneSource as helping it enhance its position with CRM technology vendors like Siebel. And, OneSource's content integration experience--especially integrating news and other Web-sources with company information--will be a big plus to InfoUSA."

The clash of cultures from two companies targeting very different spectrums of the marketplace may yet prove to make this a tricky marriage, but all things being equal, this is a major vContent play for the business information marketplace that promises to hold out great value in the months ahead.

For advisory services on a follow-up basis to this important announcement, please consider our Private Advisory Services to gain further insights from our team members.
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